The Executive Board of the International Monetary Fund (IMF) today completed the first and second reviews of Greece’s economic performance under a program supported by a four-year Extended Fund Facility (EFF) arrangement for Greece. The completion of the review enables the disbursement of an amount equivalent to SDR 2.798 billion (about €3.24 billion or US$4.3 billion), bringing total Fund disbursements under the EFF arrangement to an amount equivalent to SDR 4.197 billion (about €4.86 billion or US$6.46 billion). In completing the review, the Executive Board also approved waivers of applicability of end-December 2012 performance criteria, modified performance criteria, and rephased disbursements under the arrangement.

Following a political crisis that delayed implementation of the economic program, understandings were reached with the government on a fully recalibrated economic program to be supported under the EFF arrangement. Policies were modified to deal with stronger macroeconomic headwinds and to better reflect observed implementation capacity. The fiscal adjustment path was lengthened by two years to 2016 to give Greece more time to reach the primary balance target, privatization targets were adjusted downwards to reflect weak market conditions, and the authorities specified the adjustment measures necessary to close the fiscal gap through 2014. In addition, authorities took measures to liberalize product markets and advance bank recapitalization. The Greek government also reached understandings with its European partners on a revised financing framework, including steps to ease its debt burden.

The EFF arrangement, which was approved on March 15, 2012 , is part of a joint package of financing with euro area member states amounting to €172 billion over four years. It entails exceptional access to IMF resources, amounting to about 2,159 percent of Greece’s quota.

Following the Executive Board’s discussion, Ms. Christine Lagarde, IMF Managing Director and Executive Board Chair, said:

“The program is moving in the right direction, with strong fiscal adjustment and notable labor-cost competitiveness gains. While the program has been adjusted to take account of the deeper recession and implementation capacity, the strategy remains focused on restoring growth, competitiveness, and debt sustainability. Forceful structural reforms and broad-based domestic support will be needed to meet challenges, alongside long-term support from Greece’s European partners.

“Greece has made progress with structural reforms, reflected in recent actions to reduce non-wage labor costs and reform the product market. However, much more remains to be done to achieve the critical mass of reforms needed to boost productivity and lower prices. Ambitious reductions in barriers to competition are crucial. It will also be important for the government to deliver its privatization plans and to take appropriate steps to strengthen the governance of the process, if necessary.

“Efforts must continue to restructure and strengthen the banking system. With the finalization of the bank recapitalization framework, it is vital that the new monitoring and supervisory framework be made effective to protect the public interest and prevent state interference in management. Additional financing from euro area member states to allow Greece to redeem treasury bills from banks could support liquidity and credit creation.

“Greece’s fiscal effort has been impressive by any measure. The frontloaded adjustment will help bring spending back towards pre-euro levels, and has been designed to protect the most vulnerable. Looking ahead, Greece needs to radically overhaul its tax administration to bolster tax collections, fight tax evasion, and shrink the public sector, in particular through targeted redundancies.

“Steps are being taken to put Greece’s debt on a more sustainable path. Greece’s European partners have extended repayment periods on their loans and provided assurances that they will consider additional conditional measures and assistance to reduce debt to substantially below 110 percent of GDP by 2022.

“Euro area member states have committed to work together with the Greek authorities and the IMF to ensure the success of the program, reaffirmed the IMF’s preferred creditor status, and committed to providing adequate support to Greece during the program and beyond, provided that Greece continues to cooperate closely with the IMF in the implementation of appropriate adjustment policies. This would facilitate a return to debt sustainability and timely repayments to the Fund.”